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Monday, November 1, 2010

Should an executor invest estate funds?

In this blog, we mention executor's duties pretty often, and we sometimes mention the executor's bank account. That's an account that an executor opens when he or she begins working on an estate, so that there is a place to deposit funds coming into the estate. The account is later used to pay bills and distribute the estate to the beneficiaries.

Now, I don't want you to take the words "executor's bank account" too literally. Don't leave large amounts of money in a cash account if you have the chance to invest it. As an executor, your responsibility is to maximize the estate value for the beneficiaries. For example, if you have sold the deceased's home and cashed in the RRIF and the life insurance policy, you might have close to a million dollars. If you know you won't be paying the beneficiaries until some legal and accounting problems are sorted out - say six months away - you should invest the funds. Think of the income that could be lost over six months from that much money.

An executor who has the chance to invest estate money because the funds are being held in trust while estate matters are being worked out, should invest the funds. If he or she doesn't invest, and a beneficiary realizes that the interest that could have been earned would be in the thousands of dollars, the executor may be on the hook for that lost income.

When you are choosing an investment, you will base your decision partly on how long you expect the funds to be invested. You won't always know, of course, but if you believe the estate work is almost all wound up, you wouldn't choose an investment that is locked in for, say, a year. On the other hand, if you're setting up a trust for a five-year-old that isn't due to be paid out until the child is 18, you probably wouldn't invest in something that has to be rolled over every 30 days.

When you're investing on behalf of the estate, make sure that all investments are properly set up so that interest earned is allocated to the estate and not to you personally.

In most places in Canada, executors and administrators are permitted to invest estate funds in any kind of investment (e.g. stocks, GICs, mutual funds) as long as the executor uses the same care and attention that a reasonably prudent person would use. It is always worth the time to talk to your banker or investment advisor when investing estate money to make sure that you're not breaching your province or territory's Trustee Act in any way.

An executor should check the Will that appoints him or her to see whether it gives any specific guidance for investing.

2 comments:

  1. Thank you, this is exactly the question/answer I was looking for. Love your blog! ... just wanted you to know, you have been a great resource for me. Karen H.

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    Replies
    1. Thanks for the feedback, Karen. I think if you search this blog for lone enough, you'll find almost everything here!

      Lynne

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